Franklin to Appeal India Ruling That Led to Two-Year Funds Ban

A motorcylist passes in front of the Franklin Templeton Investments building in Hyderabad. (Photographer: Adeel Halim/Bloomberg)

Franklin to Appeal India Ruling That Led to Two-Year Funds Ban

Franklin Templeton plans to appeal a ruling by India’s markets regulator after the money manager’s local unit was barred for two years from offering new debt funds.

India’s markets regulator said it had found “several irregularities” following a probe into Franklin Templeton Asset Management (India) Pvt.’s actions last year in winding up six debt funds that held about $4.2 billion of assets. The Securities and Exchange Board of India also ordered the unit to refund management and advisory fees levied from June 2018 to April 2020 on the frozen funds and imposed a penalty of 50 million rupees ($686,950), according to its order Monday.

“We strongly disagree with the findings in the Sebi order and intend to file an appeal with the Hon’ble Securities Appellate Tribunal,” Padmanaban Nair, a spokesman at Franklin Templeton India, wrote in an emailed comment. “We place great emphasis on compliance and believe that we have always acted in the best interest of unitholders and in accordance with regulations.”

Franklin Templeton shuttered the funds last year, citing drying up of liquidity in some parts of the nation’s corporate bonds market. At the time it was the biggest-ever forced closure of Indian funds and the move and fueled worries of a renewed wave of withdrawals from similar products. Sebi tightened rules covering the industry since the closure of the funds, imposing limits on some mutual fund debt investments and mandating stress tests.

Sebi said it found several irregularities in the running of the debt funds closed by Franklin Templeton, including failures in exercising adequate due diligence, failures to abide by the Principles of Fair Valuations and failures in ensuring a robust risk management framework, according to the order.

India’s top court is also looking into the matter and is set to give a verdict on the laws relating to the shutting of funds and Sebi’s role in the coming weeks.

The regulator separately barred Franklin’s Vivek Kudva, and Roopa Kudva from accessing the securities market for a period of one year, and also imposed a combined penalty of 70 million rupees.

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